For a long period of time, China has formed an indirect financial system with bank financing as its mainstay. Banks are the largest creditors for businesses; therefore, turning bank debts into corporate equities is identified as a major mean of reducing corporate leverage. If the debt-to-equity swap is done properly, it will not only reduce the debt burden of corporate enterprises and bad debt pressures of the banks, it can also promote the mixed reforms of state-owned enterprises, so that private enterprises can enjoy more reform benefits and bring more market space for their capitals.